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Debt management in Brazil: evaluation of the Real Plan and challenges ahead

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  • Afonso S. Bevilaqua

    ()
    (Department of Economics PUC-Rio)

  • Márcio Gomes Pinto Garcia

    ()
    (Department of Economics PUC-Rio)

Abstract

The Brazilian domestic debt has posed two challenges to policy-makers: it has grown very fast and its maturity is extremely short. This has prompted fears that a default or a compulsory lengthening scheme would be imposed. Here, we analyze the domestic public debt management experience in Brazil, searching for policy prescriptions for the next few years. After briefly reviewing the recent domestic public debt history, we decompose the large rise in federal bonded debt during 1995-1998, searching for its macroeconomic causes. The main culprits are the extremely high interest payments--which were caused by the weak fiscal stance and the quasi-fixed exchange-rate regime, and the accumulation of assets of doubtful value, much of which may have to be written off in the future. Simulation exercises of the net debt path for the near future underscore the importance of a tighter fiscal stance to prevent the debt-GDP ratio from growing further. Given the need to quickly lengthen the debt maturity, our main policy advice is to foster and rely more on, inflation-linked bonds.

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Bibliographic Info

Paper provided by Department of Economics PUC-Rio (Brazil) in its series Textos para discussão with number 408.

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Length: 48 pages
Date of creation: Nov 1999
Date of revision:
Handle: RePEc:rio:texdis:408

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  1. Robert T. Price, 1997. "The Rationale and Design of Inflation-Indexed Bonds," IMF Working Papers 97/12, International Monetary Fund.
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Cited by:
  1. Alessandro Missale & Francesco Giavazzi, 2003. "Public Debt Management in Brazil," Development Working Papers 178, Centro Studi Luca d\'Agliano, University of Milano.
  2. Anastasia Guscina, 2008. "Impact of Macroeconomic, Political, and Institutional Factors on the Structure of Government Debt in Emerging Market Countries," IMF Working Papers 08/205, International Monetary Fund.
  3. Roberto Rigobon & Marcio Garcia, 2004. "A Risk Management Approach to Emerging Market’s Sovereign Debt Sustainability with an application to Brazilian data," Econometric Society 2004 Latin American Meetings 24, Econometric Society.
  4. Yu Hsing, 2003. "Impact of external debt and other macroeconomic policies on output in Brazil: a var approach," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 18(2), pages 97-108, December.
  5. World Bank, 2002. "Brazil : The New Growth Agenda, Volume 1. Policy Briefing," World Bank Other Operational Studies 15289, The World Bank.
  6. Manoel Carlos de Castro Pires, 2006. "Uma Análise de Credibilidade na Política Fiscal Brasileira," Discussion Papers 1222, Instituto de Pesquisa Econômica Aplicada - IPEA.
  7. Marcio Garcia & Roberto Rigobon, 2004. "A Risk Management Approach to Emerging Market's Sovereign Debt Sustainability with an Application to Brazilian Data," NBER Working Papers 10336, National Bureau of Economic Research, Inc.

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